Filing season gems: everything from refinancing points to giving advice on minds of CPAs.

Over this past filing season, the TaxTalk listserve was quite active and filled with practical questions and answers. Here are some of them.

Points When Refinancing With the Same Lender

If a taxpayer has been amortizing points and then refinances, the general rule has been that un-amortized points from the first loan are deducted in full and the points on the new loan are amortized.

But there is an exception: If the tax-payer refinances with the same institution to which they are paying off the first loan, then the points on that loan may not be written off in-full in the payoff year. Rather, the first loan's points continue their amortization and the new loan's points also begin to amortize.

The cite given for this is Rev. Rul. 87-22, 1987-1 CB 146.

"Joint" Schedule Cs on Form 1040

At least one software package allows tax accountants to select a "joint" Schedule C to produce two Self-Employment tax schedules. The purpose in the minds of those who do this is to increase the amount that the married couple can set aside in SEPs, or Keoghs.

The same software package also prints a diagnostic stating that this is irregular, and the couple actually should be filing a Form 1065, partnership return.

It turns out that there is authority for filing a joint Schedule C. Rev. Proc. 2002-69 states that a joint Schedule C may be filed for those in community property states. In other states, the couple must file as a partnership or incorporate.

Retired Insurance Agents' Residuals

Whether or not retired insurance agents' residuals are subject to self-employment taxes was controversial for several years since the IRS held that these residuals were subject to the tax and won at least one Tax Court case. However, a taxpayer appealed this issue to the 9th Circuit and prevailed. Congress subsequently amended IRC Sec. 1402 to hold that retired insurance agents' residuals are not subject to self-employment tax.

General Advice to the Public

During tax season, CPAs often are asked to appear on radio or television to give tax tips. One such panel asked TaxTalk for some ideas before an appearance.

Several good ideas were offered, but one stood out. A tax controversy attorney said that the most important advice to give people is to tell them to pay their taxes.

He said he's seen hundreds of cases where exotic theories for not paying taxes were shot down and the resulting penalties and interest far exceeded the original cost. Also, there is the emotional cost when people lose their homes, suffer anxiety and devote precious time to battles against the government that they're bound to lose.

A simple example comes to mind: Years ago, people got the ingenious idea that if they put 99 withholding exemptions on their W-4s, there'd be no withholding. (This can't be done now because the IRS requires employers to submit W-4s with more than 10 withholding exemptions).

But when it was going on, a lot of us saw young, naive couples claim 99 exemptions and go into shock the following tax year when they owed thousands of dollars in taxes. They had believed that the lack of withholding meant they would have no tax liability.

Administrative Expenses When a Relative Uses the Decedent's House

A decedent's house was empty for two months after the date of death and before the daughter moved in rent-free. The question was whether or not the upkeep and maintenance expenses could be claimed as an administrative expense.

Rev. Rul. 56-604, 1956-2 C.B. 601 says no.

Even if the residency by a relative is approved by the probate court, the utilities and such aren't deductible as administrative expenses. However, expenses directly connected with the property's preservation and sale, such as a caretaker's wage during the period the executor is required to retain the property, may be administration expenses that are deductible from the decedent's gross estate.

[ILLUSTRATION OMITTED]

A Handy Mnemonic for A-B trusts

The "A" trust is for the one "above ground;" the "B" trust is for the one "below ground."

Overlooked Tank Trap in Filing as Married-Filing-Separately (MFS)

It is easy to overlook the fact that if a couple files separately, each one filing as MFS, then there are restrictions on their use of the standard deduction.

The rule is that if one itemizes, the other has to.

The question arose as to who makes that determination. In other words, if one of them files using the standard deduction, and the IRS sends an assessment because the other used itemized deductions, can the one who used the standard deduction protest? Alas, no.

[ILLUSTRATION OMITTED]

Sec. 63c(6)(A) says that if one of them uses itemized deductions, the other one has a zero standard deduction.

Thanks to the following participants for the use of their contributions in this column: CPAs Dave Aurit, Robt. B. Cruser, Dale Isaacs, Steve Kramer, Marge Pence and Elaine Soost, and JDs Woody Rowland and Don Yamagishi.

By Leonard W. Williams, CPA 

Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner. A member of CalCPA's Committee on Taxation, the AICPA Tax Division and a former Peninsula Chapter president, you can reach him at [e-mail].